Summary
LDCs and all ACP countries who have in place Economic Partnership Agreements with the EU now have in place arrangements which will roll over existing DFQF access to the UK market. However the future value of this rolled over DFQF access will be determined by the MFN tariff regime which the UK government will apply either under a no-deal Brexit or at the end of any agreed transition period in UK/EU trade relations. While the UK government announced a ‘development friendly’ temporary no-deal Brexit tariff schedule in March 2019 (with this being slightly revised in October 2019), a full scale review of the UKs temporary MFN tariff schedule is planned from January 2020, with this involving a two month period of public consultations. Following on from this review it is anticipated the UK government will make an announcement on the long term MFN tariffs it plans to apply. It is only at this point that the future value of the rolled over DFQF access granted ACP countries will finally be known. The preferential duty free access rolled over for preferred ACP partner countries adds nothing to the competitive position of ACP exporters if all other competing suppliers also enjoy duty free access as a result of the elimination of MFN duties.
Least developed countries had their continued duty free access to the UK market confirmed as early as 24th June 2017. At this time the UK government announced its intention to roll over the EU’s existing EBA scheme in favour of least developed countries, regardless of the outcome of the Brexit negotiations (see companion epamonitoring.net article ‘UK government commits to extending EBA access for LDCs post Brexit’, 30 June 2017).
At an early stage the UK insisted non-least developed countries would only be able to reconsolidate their duty free-quota free access to the UK market through the conclusion of what were referred to at the time as Continuity Agreements. Such agreements would de facto seek to ‘roll over’ existing reciprocal preferences unchanged, despite the profound consequences which the withdrawal of the UK from the EU customs union and single market would have for the conduct of the ACP countries export trade to the UK market.
With prospects of a no-deal Brexit being faced in the early months of 2019 the Eastern and Southern African countries of Madagascar, Mauritius, Seychelles and Zimbabwe were the first ACP EPA signatories to conclude a rolled over Continuity Agreement with the UK (see companion epamonitoring.net article ‘UK Signs Continuity Agreement with ESA Governments’, 4 February 2019)
By the 14 March 2019 the Governments of the Pacific ACP states, Fiji and Papua New Guinea had followed suit (see epamonitoring.net article ‘Fiji and Papua New Guinea Sign onto Continuity Agreements with the UK’, 18 March 2019). By the 22nd March 2019 the governments of the CARIFORUM countries (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad& Tobago, Haiti) has also concluded a ‘rolled-over’ Continuity Agreement with the UK (see companion epamonitoring.net article ‘UK Signs Continuity Agreement with Caribbean ACP Countries’, 28 March 2019).
However it was not until 11th September 2019 in the context of the ongoing chaos around the Brexit process that the governments of SACU countries (Botswana, Lesotho, Namibia, Eswatini, South Africa) and Mozambique concluded negotiations and initialled a Continuity Agreement with the UK. This followed considerable discussion over the final parameters of this ‘rolled over’ agreement (1) (see companion epamonitoring.net article ‘SADC EPA Group Initial Continuity Agreement with the UK’, 16 September 2019).
This left only the EPA participating countries of Ghana, Cote d’Ivoire, Cameroon and Kenya without a framework for future duty free-quota free access to the UK market in the event of a no-deal Brexit.
The UK government had repeatedly insisted that ‘should arrangements to maintain particular preferences in a no deal scenario not be in place on exit day, trade would then take place on a ‘Most-Favoured Nation’ (MFN) basis….until such a new arrangement has been implemented’.
However in the run up to the Commonwealth Trade Ministers meeting in London on 10th October 2019 the Governments of Ghana, Cote d’Ivoire, Cameroon and Kenya were notified of their eligibility for continued duty free-quota free access to the UK market for an 18 month period from the day the UK leaves the EU customs union under a special ‘unilateral preference mechanism’ referred to as a Transitional Protection Mechanism (TPM).
This measure will temporarily maintain duty-free market access for 18 months for a small group of countries that meet certain criteria related to their development, financial and trade needs. These vulnerability criteria are defined around the developmental impacts of a sudden shock caused by an abrupt change in their terms and conditions of access to the UK market, alongside a combination of UN and World Bank development indices.
The formal announcement of the TPM will await the tabling of the enabling legislation before Parliament as part of wider no-deal Brexit legislative measures (indicatively scheduled for 21st October 2019). Should a no-deal Brexit be averted then while the UK remains a member of the EU, existing EU trade agreements will continue to apply to ACP exports to the territory of the UK. In addition if an agreement is reached which introduces a transition period in EU/UK relations then existing EU trade agreements will continue to govern ACP exports to the UK throughout this period.
Basis for Continued Duty Free Quota Free Access to the UK Market Under a No-Deal Brexit
| Rolled Over EBA for LDCs (Unilateral) | ACP Least Developed Countries |
| LDCs (24th June 2017) | Angola*, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sudan, Timor-Leste, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Zambia |
| Concluded Rolled Over Continuity Agreements | ACP Countries
|
| EU-Eastern & Southern Africa (ESA) EPA (31st January 2019 | Madagascar, Mauritius, Seychelles, Zimbabwe
|
| EU-Pacific EPA (concluded 14th March) | Fiji, Papua New Guinea |
| EU-CARIFORUM EPA (22nd March 2019) | Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad& Tobago, Haiti |
| EU-SADC EPA Group (initialled 11 September 2019, signed 10th October 2019) | Botswana, Lesotho, Namibia, Eswatini, South Africa, Mozambique |
| Transitional Protection Mechanism (Unilateral) | ACP Countries |
| West Africa ‘Stepping Stone’ EPA | Ghana, Cote d’Ivoire |
| Central Africa | Cameroon |
| EAC-EU EPA | Kenya |
* shortly to be graduated out of LDC status
This creates a situation where all ACP countries currently enjoying duty free-quota free access to the UK market under unilateral trade arrangements or agreements concluded with the EU will continue to enjoy such duty free-quota free access until at least 18 months after the date of the UK’s no deal departure from the EU, should this outcome eventually emerge.
While ACP countries are now guaranteed continued DFQF access to the UK market for at least 18 months after a no-deal Brexit, the question of the future value of this rolled over duty free quota free access will be determined by the nature of the UK’s long term MFN tariff regime.
This needs to be seen in a context where the preferential duty free-quota free access granted ACP countries only enhances the competitive position of ACP exporters for as long as existing high MFN import duties are applied to their competitors. If MFN duties are eliminated the value of the ACP tariff preferences rolled over simply disappears.
Currently the UK has announced a temporary no-deal Brexit MFN tariff schedule which will apply in the event of a no-deal Brexit. This includes the maintenance of existing MFN tariffs on ‘development grounds’ in areas where the UK has no domestic production, for example for bananas (but not citrus fruit).
This ensures in the short term the continued value of most of the rolled over preferential access which ACP exporters currently enjoy on products exported to the UK where the EU has in place high MFN tariffs.
This is not the case for all products, with the UK having removed duties in some areas where there is no domestic UK production or UK domestic production is marginal (e.g. for citrus fruit or cocoa powder and chocolate).
Currently there is a line of argument within the Conservative Party which is advocating for a UK MFN policy which would see the introduction of ‘zero-tariffs where there is zero UK production’. This would remove all MFN tariffs where there are no UK domestic production interests which need to be protected.
To date this approach has not won out, since UK trade negotiators realise that offering tariff free access at the MFN level will undermine their ability to negotiate new trade agreements or even roll over existing EU trade agreements into UK-only trade agreements (e.g. the EU-Canada agreement, where the Canadian government is awaiting the announcement of the UK’s long term MFN tariff schedule and the elaboration of the UK’s future trade relationship with the EU before entering into bilateral trade negotiations with the UK).
In the event of a no-deal Brexit the UK government currently plans a full public consultation on the UK’s permanent MFN tariff regime in January 2020. This is scheduled to last 2 months. This means that if a ‘no-deal’ Brexit occurs by as early as March 2020 the UK could be undertaking a review of the MFN tariffs it applies on products of export interest to ACP countries. In the event of an EU-UK transitional arrangement being put in place, the introduction of a ‘UK-only’ MFN regime would be deferred until the end of this period.
This needs to be seen in a context where the current temporary UK no-deal MFN tariff schedule provides significant margins of tariff preference for certain ACP exports, notably such products as bananas, canned tuna, sugar and even potentially certain value added cocoa products.
| Comment and Analysis
The total value of exports to the UK market where the UK’s pursuit of a ‘zero production-zero tariff’ MFN tariff policy would undermine the value of rolled over tariff preferences granted ACP countries under the different trade arrangements now scheduled for implementation in the event of a ‘no-deal’ Brexit was €845.5 million in 2018. In terms of the value of trade, the most important products across the ACP which would be affected by the UK’s pursuit of a ‘zero production-zero tariff’ MFN tariff policy would be: · bananas (25% of the total affected exports); · preserved tuna (24% of the total affected exports); · cane sugar exports (14% of the total affected exports). These would also be the most significantly affected products given the current MFN tariffs applied and the margins of tariff preference which this gives rise to. Given how the markets for these products work and the basis on which investment decisions are made, particular concerns arise in regard to bananas and certain preserved tuna exporters. Given the existence of domestic UK sugar production however a more nuanced managed trade approach is likely to be adopted in the sugar sector, which could partly insulate the more competitive ACP sugar exporters from any policy changes the UK government may consider in the post-Brexit period in light of the likely disruption of current EU27/UK trade flows. There are in addition a number of products which while small in overall export value terms are significant to particular sectors in the affected economies and would be severely affected by any move over to a zero MFN tariff regime. This primarily relates to frozen, chilled and fresh beef exports from Botswana and Namibia. Here again however the existence of domestic UK production could give rise to a more nuanced managed trade approach, with enhanced product differentiation marketing strategies potentially serving to insulate Namibian and Botswanan beef exporters from the worst effects of any change in UK MFN tariffs. The margins of tariff preference are less significant in other areas. For example for fresh beans where the dominant market position of the main ACP exporter, Kenya, means it is likely to be able to adjust to any loss of the current margin of tariff preferences. Other smaller ACP fresh bean exporters however may be less well placed to compete if the current margins of tariff preference enjoyed disappear. Similarly in the palm oil sector (12% of the total affected exports at the ACP level), the market positioning strategy adopted by Pacific island exporters, which focusses on the export of fully traceable sustainably certified palm oil, may help insulate them from any loss of existing margins of tariff preferences. Other smaller ACP palm oil exporters however wold be likely to be adversely affected. Value added cocoa products (16% of the total affected exports at the ACP level) fall into a particular category. Currently UK imports of these products are dominated by EU27 suppliers. The imposition of standard MFN duties on UK imports from EU27 processors could open up opportunities for increased exports of cocoa butter and cocoa paste from West African cocoa producing countries. In this context it should be noted an expansion of West African exports of cocoa butter and cocoa paste to the EU28 market is already firmly underway, following the granting of full duty free-quota free access to value added cocoa products exports in 2008. However while the UK currently proposes to retain MFN tariffs in place on cocoa paste and cocoa butter, the UK’s October 2019 review of its no-deal Brexit MFN schedule proposed the elimination of current EU MFN tariffs on cocoa powders and chocolate. This will serve to limit the opportunities for movement up the cocoa value chain which a no-deal Brexit could give rise to. Summary of Proposed UK MFN Tariffs for Main Products of Export Interest to ACP Countries Where the Value of DFQF Access Could Be Eroded
Source: THE TARIFF OF THE UNITED KINGDOM Version 1.0, dated 8th October 2019 ACP products where EU MFN Tariffs Have Already Been Removed
Source: THE TARIFF OF THE UNITED KINGDOM Version 1.0, dated 8th October 2019 |
Sources
(1) Gov.uk, ‘UK agreed trade continuity with 6 African nations’, 11 September 2019
https://www.gov.uk/government/news/uk-agreed-trade-continuity-with-six-african-nations
(2) Gov.uk, ‘Existing free trade agreements if there’s no Brexit deal’, 19 December 2018
https://www.gov.uk/government/publications/existing-free-trade-agreements-if-theres-no-brexit-deal